Inside Trump’s 2025 Tax Reform Bill

President Donald Trump’s sweeping multitrillion-dollar tax and spending package moved a step closer to enactment after Senate approval on Tuesday. The Republican-led Senate made significant changes to the House version, deepening cuts to Medicaid and fast-tracking the rollback of clean energy subsidies.

The bill extends and expands core provisions of the 2017 Tax Cuts and Jobs Act, adding new temporary deductions for tipped and overtime workers. It injects hundreds of billions into defense and immigration enforcement, including $92 billion for border wall construction and detention centers.

State and Local Tax Deduction Expansion

The Senate bill raises the state and local tax (SALT) deduction cap to $40,000 annually for five years, phasing out for incomes above $500,000. This concession, driven by high-tax state Republicans, reverts to the $10,000 limit post-2029, prompting dissent from figures like New York’s Nick LaLota, who demands a decade-long extension.

Legal workarounds allowing pass-through businesses to bypass SALT caps were preserved, benefiting owners in states like New York and California. This provision underscores the bill’s balancing act between regional economic demands and broader fiscal policy goals.

Tax Breaks for Workers and Consumers

Tipped and overtime workers gain temporary tax exemptions, with tips up to $25,000 and overtime up to $12,500 (individual) or $25,000 (couple) tax-free through 2028. These benefits phase out for incomes above $150,000, targeting relief for middle-income earners.

A new auto loan interest deduction, capped at $10,000 for U.S.-assembled vehicles, runs from 2025 to 2028. Additionally, the child tax credit rises to $2,200 per child, made permanent and inflation-adjusted, enhancing family-oriented tax relief.

Medicaid and Rural Healthcare Adjustments

Medicaid faces nearly $1 trillion in cuts over a decade, potentially stripping coverage from 11.8 million Americans, per the Congressional Budget Office. New work requirements and cost-sharing measures, like co-pays for Affordable Care Act beneficiaries, aim to reduce federal spending but risk access to care.

To offset Medicaid cuts on rural hospitals, a $50 billion fund was added, addressing concerns from rural lawmakers about potential hospital closures. These provisions highlight the bill’s tension between fiscal restraint and healthcare access.

Renewable Energy and Electric Vehicle Shifts

The Senate accelerates the phase-out of clean energy tax credits, requiring wind and solar projects to be operational by 2027, though projects starting construction by mid-2026 gain a four-year extension. An excise tax on Chinese components in renewable projects was also dropped, favoring developers but challenging U.S. manufacturers.

The $7,500 electric vehicle tax credit ends September 30, 2025, earlier than prior proposals, signaling a pivot away from EV incentives. These changes reflect a broader retreat from green energy support in favor of traditional economic priorities.

Business and Semiconductor Incentives

Permanent business tax breaks include full deductions for depreciation, amortization, research and development, and 100% bonus depreciation for machinery and factories. These measures, benefiting sectors like banking, aim to spur investment by freeing corporate cash flow.

Semiconductor manufacturers receive a boosted 35% investment credit, up from 25%, encouraging domestic production by the 2026 deadline. This provision aligns with Trump’s push for industrial self-sufficiency and economic competitiveness.

Trump Child Accounts and Endowment Taxes

The bill introduces “Trump” investment accounts, allowing tax-deferred contributions up to $5,000 annually for children until age 18. U.S. citizens born between 2025 and 2028 receive a $1,000 federal contribution, a signature initiative tied to Trump’s term.

Private college endowments face a tiered tax increase, with rates up to 8% for wealthier institutions based on per-student endowment income. This targets elite universities, aiming to redirect resources from perceived liberal strongholds.

Immigration Enforcement and Remittance Taxes

The package allocates $45 billion for detention centers and $47 billion for border infrastructure, including wall construction, to support Trump’s immigration crackdown. These funds underscore the administration’s focus on border security as a fiscal priority.

A 1% tax on international remittances, down from the House’s 3.5%, targets migrant transfers, generating revenue while aligning with immigration policy goals. This reduction reflects compromises to secure broader Senate support.

Food Aid and Consumer Protection Cuts

SNAP work requirements expand to age 65 from 60, with new state cost-sharing mandates, though Alaska and Hawaii secured partial waivers. These changes aim to reduce federal food aid spending but may strain low-income households.

The Consumer Financial Protection Bureau’s funding drops to 6.5% of the Federal Reserve’s expenses, halving its resources. This cut limits oversight of predatory lending, raising concerns about consumer vulnerabilities reminiscent of the 2008 financial crisis.

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